How Low Will Hong Kong Go?

The city-state's property stocks have been discounting a drop in housing prices for years. It's arrival may actually help the beleaguered shares.

Few real-estate markets swing as wildly as Hong Kong's. Investors can make huge profits; it's the timing that's tough. Between late 1997 and mid-2003, Hong Kong housing prices fell by 76%. From there, they had quintupled by earlier this year. They've just started to fall again in recent weeks, and analysts believe they could decline a lot further. But investors shouldn't simply flee: There could be opportunities in property stocks before long.

Home prices could fall at least 30% over the next two years from their current...